Understanding Financial Accounting 3rd Canadian Edition by Christopher D. Burnley test bank

Measures the operating activities and performance of a company over a period of time, normally a year. Calculates the net income for a period of time by deducting expenses from sales revenues. Revenues – Expenses = Net Income
 
Statement of Financial Position
Can be represented by the equation: Assets = Liabilities + Shareholders’ equity.
Measures the resources controlled by a company (assets) and the claims on those resources (liability and equity holders) at a given point in time.
 
Statement of Cash Flow
Measures the cash inflows and outflows or change in cash flow over a period of time, normally a year, and groups the cash flows into operating, investing, and financing activities.
 
Bloomcode: Comprehension
Difficulty: Medium
Learning Objective: Identify and explain the content and reporting objectives of the four basic financial statements and the notes to the financial statements.
CPA: Financial Reporting
AACSB: Analytic
 
 
101. List the three types of business activities that are measured and reflected on the cash flow statement and provide three examples of transactions found within each activity.
 
Solution (5 min.)
Financing
         These activities involve raising long-term capital to finance the purchase of long-term assets. Typically, this includes borrowing money, repaying loans, issuing shares, repurchasing shares, and paying dividends.
 
Investing
         These activities involve the sale or purchase of long-term assets. This includes purchasing property, plant, and equipment; selling property, plant, and equipment; investing in other companies' shares; selling the investment in other companies' shares.
 
Operating
         These are day-to-day activities the firm engages in, including sales to customers, collections on accounts receivable, purchase of inventory, payments on accounts payable, operating expenses, and taxes.
 
Bloomcode: Knowledge
Difficulty: Medium
Learning Objective: Identify and explain the content and reporting objectives of the four basic financial statements and the notes to the financial statements.
CPA: Financial Reporting
AACSB: Analytic
 
 

 
 
ESSAY QUESTIONS
 
 
102. What are consolidated statements? Do these statements provide useful information to users?
 
Solution (12 min.)
Consolidated statements are the combination of all the elements of the subsidiary’s financial statements with that of the parent company. When businesses expand, they will often establish other companies or buy shares in other companies. This enables them to expand operations and diversify their risk.
When subsidiary companies are similar to the parent company’s business, the consolidated financial statements provide much more useful information because they cover the entire group of companies that are under common ownership.
When the business subsidiary is very different from the parent company, it may be difficult to interpret the financial statements due to the complexity.
 
Bloomcode: Comprehension
Difficulty: Hard
Learning Objective: Explain the three categories of business activities and identify examples of transactions related to each category.
CPA: Financial Reporting
AACSB: Analytic
 
 
103. What are the “notes to the financial statements”? Why are they used?
 
Solution (15 min).
The notes to the financial statements are a critical part of the financial statements. In them, management gives more detail about specific items such as the various types of inventory held by the company and details on their long-term assets. By including additional explanations in notes rather than in the financial statements, management keeps the company’s statements simple and uncluttered. Note disclosures help to increase the usefulness of the financial statements and enhance the user’s understanding of the various components of the statements.
 
Bloomcode: Comprehension
Difficulty: Medium
Learning Objective: Identify and explain the content and reporting objectives of the four basic financial statements and the notes to the financial statements.
CPA: Financial Reporting
AACSB: Analytic
 
 

 
 
 
 
LEGAL NOTICE
 
 
 


 
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